You may know that you dont pay taxes on contributions to your work retirement plans; you may even know that retirement plan assets grow tax deferred. But, today, we talk about a third reason to fund your work retirement plans: Asset Protection.
First, work retirement plans refer to your retirement plan offered at work. Examples would be a 401k, 403b, pension plans (defined benefits plans), and profit sharing plans (defined contribution plans.)
Second, asset protection means taking steps so that a creditor (i.e., someone who sues you) cant take your work retirement plans. They have asset protection thanks to the federal ERISA statute.
- A statute is a written law.
- ERISA stands for Employee Retirement Income Security Act.
ERISA protects your work related retirement savings, so they cant be taken in a lawsuit or bankruptcy.
Fund as much of your assets into your work retirement plans as you can afford and is allowable under federal law. If you own your own business, there are ways to set up retirement accounts so they can be super-funded.
- Be sure to consult with a qualified estate planning attorney to determine how you can best protect your retirement assets.
In addition, while traditional IRAs and Roth IRAs do have asset protection, they do not have the same level of asset protection as plans at work. The thought is to fully fund plans at work first; then, look to funding IRAs.